SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended March 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-23528
J.A. INDUSTRIES, INC.
(Exact name of small business issuer as specified on its charter)
Delaware 13-3421337
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
34A-2755 Lougheed Highway, Suite 522, Port Coquitlam, B.C. V3B 5Y9 Canada
(Address of principal executive offices)
Issuer's telephone number, including area code: 604-941-3413
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practical date.
Common Stock, par value $0.0025 per share
Class
9,417,904
Number of shares outstanding
<PAGE>
J.A. INDUSTRIES, INC.
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION Page
Consolidated Condensed 1
Balance Sheet March 31, 1996 (unaudited)
with comparative figures
March 31, 1995 (unaudited)
Consolidated Condensed 3
Statement of Operations
for the nine months ended
March 31, 1996 (unaudited)
with comparative figures
March 31, 1995 (unaudited)
Consolidated Condensed 4
Statement of Operations
for the three months ended
March 31, 1996 (unaudited)
with comparative figures
March 31, 1995 (unaudited)
Consolidated Condensed 5
Statement of Change in Financial Position
for the nine months ended
March 31, 1996 (unaudited)
with comparative figures
March 31, 1995 (unaudited)
Consolidated Condensed 6
Statement of Changes in
Shareholder's Equity
for the nine months ended
March 31, 1996 (unaudited)
with comparative figures
March 31, 1995 (unaudited)
Notes to Condensed Financial Statements 7
Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
PART II: OTHER INFORMATION
Signatures 19
<PAGE>
J.A. Industries, Inc.
Consolidated Financial Statements
(unaudited)
Third Quarter
March 31, 1996
<PAGE>
J.A. Industries, Inc.
Consolidated Balance Sheets
(unaudited)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31
1996 1995
------------------------- ---------------------------
<S> <C> <C>
Assets
Current
Cash $ 2,081 $ -
Accounts receivable
Trade --- 561,107
Other 14,900 80,168
Inventory (note 3) --- 385,449
Prepaid expenses and deposits --- 44,803
------------------------- ---------------------------
16,981 1,071,527
Real estate held for resale --- 875,000
Property and equipment (note 4) --- 271,224
Investments --- 200
Intangible assets (note 5) --- 117,775
------------------------- ---------------------------
$ 16,981 $ 2,335,726
------------------------- ---------------------------
</TABLE>
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<PAGE>
J.A. Industries, Inc.
Consolidated Balance Sheets
(unaudited)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31
1996 1995
----------------- ------------------
<S> <C> <C>
Liabilities
Current
Bank indebtedness $ - $ 105,000
Accounts payable 158,576 928,358
Accrued Liabilities 29,000 -
Due to shareholders 33,100 51,426
Equipment loans --- 119,048
Current portion of long-term debt (note 7) --- 155,270
----------------- ------------------
220,676 1,359,102
Loans from shareholders (note 6) --- 136,691
Long-term debt (note 7) - -
----------------- ------------------
220,676 1,495,793
----------------- ------------------
Share Capital and Deficit
Capital stock:
Authorized:
20,000,000 common shares with a par value of $0.0025 per share
Issued:
9,417,904 shares (1995 - 6,703,417) 23,545 17,043
Additional paid-in capital 5,820,157 3,948,343
Accumulated deficit (5,702,948) (3,381,265)
Cumulative translation adjustment (9,504) 11,144
Treasury stock, at cost (131,250) ---
----------------- ------------------
(203,695) 595,265
----------------- ------------------
$ 16,981 $ 2,091,058
----------------- ------------------
</TABLE>
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<PAGE>
J.A. Industries, Inc.
Consolidated Statements of Operations
(unaudited)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the three months ended
March 31
1996 1995
-------------- -----------------
<S> <C> <C>
Sales $ --- $ 1,035,397
Cost of sales --- 920,208
-------------- -----------------
Gross profit --- 115,189
Selling and marketing expenses --- 17,422
General and administrative expenses 298,405 262,027
-------------- -----------------
Loss from operations (298,405) (164,260)
Other income (expense) - (76,309)
-------------- -----------------
Consolidated net loss $ (298,405) $ (240,569)
-------------- -----------------
Loss per share $ 0.03 $ 0.04
-------------- -----------------
</TABLE>
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<PAGE>
J.A. Industries, Inc.
Consolidated Statements of Operations
(unaudited)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the nine months ended
March 31
1996 1995
----------------- -------------------
<S> <C> <C>
Sales $ --- $ 3,452,982
Cost of sales --- 2,897,666
----------------- -------------------
Gross profit --- 555,316
Selling and marketing expenses --- 114,676
General and administrative expenses 1,043,970 741,524
----------------- -------------------
Loss from operations (1,043,970) (300,884)
Other income (expense) (74,591) (130,683)
----------------- -------------------
Consolidated net loss $ (1,118,561) $ (431,567)
----------------- -------------------
Loss per share $ 0.12 $ 0.06
----------------- -------------------
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<PAGE>
J.A. Industries, Inc.
Consolidated Statement of Changes in Financial Position
(unaudited)
- - --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For the nine months ended
March 31
1996 1995
------------------- -------------------
<S> <C> <C>
Cash provided by (used in)
Operating activities
Net loss for the period $ (1,118,561) $ (431,566)
Items not affecting cash:
Amortization --- 114,180
Issuance of stock for services 662,751 -
Loss on sale of subsidiary 74,591 54,470
Changes in non-cash working capital 202,747 (117,102)
------------------- -------------------
(178,472) (380,018)
------------------- -------------------
Financing activities
Issue of common shares 170,000 473,113
Cancellation of shares on settlement of debt - (53,648)
Equipment Loans - (119,048)
Loan from shareholders 10,000 4,576
Long-term debt - (65,831)
------------------- -------------------
180,000 239,162
------------------- -------------------
-------------------
Investing activities
Purchase of property and equipment --- (4,578)
Proceeds on sale of subsidiary 100 172,656
Proceeds on disposition of investments - 21,875
100 189,953
------------------- -------------------
Increase (decrease) in cash position 1,628 49,097
Effect of currency translation on cash flow - 15,022
Cash position beginning of period 453 (166,142)
------------------- -------------------
Cash position end of period $ 2,081 $ (102,023)
------------------- -------------------
Represented by:
Cash $ 2,081 $ -
Bank indebtedness - (102,023)
------------------- -------------------
$ 2,081 $ (102,023)
------------------- -------------------
</TABLE>
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<PAGE>
J.A. Industries, Inc.
Consolidated Statements of Changes in Shareholders' Equity
(unaudited)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Nine months ended March 31, 1996
and the year ended June 30, 1995
Capital Stock Additional Foreign Stock
Paid In Operating Currency Subscription Treasury
Shares Amount Capital Deficit Translation Receivable Stock
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance June 30, 1994 6,493,778 $16,234 $3,849,152 $(3,255,919) $(7,561) $ --- $ ---
Issued for cash 581,383 1,453 494,797 --- --- --- ---
Issued for consulting fees 582,292 1,456 524,642 --- --- (30,000) ---
Issued and unpaid 500,000 1,250 428,750 --- --- (430,000) ---
Issued to repay debt 50,000 125 51,982 --- --- --- ---
Issued as compensation 12,600 32 12,569 --- --- --- ---
Reverse equipment purchase (600,000) (1,500) (52,148) --- --- --- ---
Reverse Hutronix, Inc. acquisition --- --- --- --- --- --- (131,250)
Shares cancelled (68,450) (171) 171 --- --- --- ---
Aggregate adjustment resulting
from translation of financial
statements into U.S. dollars --- --- --- --- 3,057 --- ---
Net loss for the year ended
June 30, 1995 --- --- --- (2,155,220) --- --- ---
------------------------------------------------------------------------------
Balance June 30, 1995 7,551,603 18,879 5,309,915 (4,904,793) (4,504) (460,000) (131,250)
Issued for cash 500,000 1,250 168,750 --- --- --- ---
Issued for consulting fees 100,000 250 27,225 --- --- --- ---
Services rendered as consideration
for shares --- --- --- --- --- 460,000 ---
Issued to pay debt 1,266,301 3,166 314,267
Net loss for the nine months ended
March 31, 1996 --- --- --- (1,118,561) --- --- ---
------------------------------------------------------------------------------
Balance March 31, 1996 9,417,904 $ 23,545 $5,820,157 $(6,023,354) $(4,504) $ --- $ (131,250)
------------------------------------------------------------------------------
</TABLE>
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<PAGE>
J.A. Industries, Inc.
Notes to Consolidated Financial Statements
(unaudited)
December 31, 1995 and 1994
- - --------------------------------------------------------------------------------
1. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of:
J.A. Industries, Inc., a Delaware corporation and the
following wholly owned subsidiaries:
J.A. Industries (Canada), Inc., a Canadian corporation.
Granite Marketing Corp., a Cayman Island corporation.
Hutronix, Inc. an Arizona corporation.
QDS, de Mexico, S.A. de C.V. a Mexican corporation.
and the 96% owned subsidiary, Hutronix de Mexico, S.A. de
C.V. which has been inactive since August 17, 1982.
All significant inter-company balances and transactions have been
eliminated on consolidation.
J.A. Industries (Canada), Inc. was disposed of during the year ended
June 30, 1995. Hutronix, Inc. and QDS de Mexico were disposed of
during the year ended June 30, 1996 subject to shareholder approval.
Translation of Foreign Currencies
Account balances and transactions denominated in foreign
currencies have been translated into U.S. funds as follows:
Assets and liabilities at the rates of exchange prevailing
at the balance sheet date; Revenue and expenses at average
exchange rates for the period in which the transaction
occurred; Exchange gains and losses arising from foreign
currency transactions are included in the determination of
net earnings for the period.
2. Sale of Subsidiary
On November 23, 1995, the Company sold all of the common
shares of Hutronix, Inc. and on and on August 15, 1995 the
Company sold all of the common share of Granite Marketing
Corporation for $100. The two transaction resulted in a loss
of $74,591, which has been included in other expense for the
period ended December 31, 1995. Granite Marketing Corp. was
inactive during the period.
3. Inventory
Inventory consists of: 1995 1994
Raw materials $ --- $ 531,321
Less: Reserve for obsolescence --- 190,000
---------- -----------
--- 341,321
Work-in-process --- 104,604
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<PAGE>
Finished goods --- 7,349
---------- -----------
$ --- $ 453,274
---------- -----------
4. Property and equipment
Accumulated Net Book Value
Cost amortization 1995 1994
------- ---------- -------- ------------
Land $ --- $ --- $ --- $ ---
Building --- --- --- ---
Forklift --- --- --- 7,410
Vehicles --- --- --- 81
Office equipment --- --- --- 46,264
Computer equipment --- --- --- 27,957
Manufacturing equipment --- --- --- 199,669
Leasehold improvements --- --- --- 935
Assets not-in-service --- --- --- 232,520
--------- --------- --------- ---------
$ --- $ --- $ --- $514,836
--------- --------- --------- ---------
5. Intangible assets
Intangible assets comprise the following: 1995 1994
Goodwill $ --- $128,767
Incorporation costs --- 3,000
Patent costs --- 8,895
--------- ---------
--- 140,662
Amortization --- 16,096
--------- ---------
$ --- $124,566
--------- ---------
6. Loans from shareholders
Loans from shareholders comprise the following: 1995 1994
Loan payable to Alexander Michie, balance
due on demand with no stated interest rate. $20,000 $ ---
Loan payable to 391566 B.C. Ltd., balance
due on demand with no stated interest rate. 1,064 ---
Loan payable to Alexander Michie. The loan
is unsecured and has no terms of repayment.
The loan has a stated interest rate of
prime plus 2%. --- 138,146
-------- ---------
$21,064 $138,146
-------- ---------
7. Long-term debt
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Note payable to a bank executed through the Industrial
Development Authority of the City of Douglas, Arizona due
-8-
<PAGE>
in quarterly instalments of $12,821, plus interest at 65% of prime
(9.0% as of March 31, 1995), due May 2005; secured by a deed of
trust on the real estate held for sale, an irrevocable letter of
credit from a bank in the amount of the outstanding note payable
balance and the assignment of a life insurance policy owned by a
related party on the president of Hutronix, Inc. At March 31,
1995 the company was not in compliance with certain restrictive
covenants contained in this note. $ - $ 564,087
Note payable to a supplier due in quarterly instalments of
$8,361 plus interest at 6% unsecured, due March 15, 1995 --- 8,086
Promissory note payable to a lender. The principal of
$36,155 (CDN $50,000) plus accrued interest at 24% per annum is
payable on demand. The lender has stated that it is not her
intention to demand repayment of the note before March 31, 1996.
--- 51,283
Mortgage payable, on manufacturing equipment, to the Province of
British Columbia, Canada due in monthly payments of $1,787 (CDN
$2,500) plus interest at 6% per annum. The principal balance is
due July 1, 1995.
--- 83,078
----------------- -----------------
- 706,534
Less: Current portion --- 155,270
----------------- -----------------
$ - $ 551,264
----------------- -----------------
</TABLE>
8 Income tax
The Company has losses for income tax purposes which may be
carried forward and applied to reduce future income taxes. The
deferred tax benefit related to these losses has not been
recorded in the accounts as there is not virtual certainty of
realization.
All of the income attributable to Granite Marketing Corp. (a
Cayman Island corporation) is reported as non-taxable.
9 Commitments and Contigencies
Under the terms of various agreements, the Company has guaranteed
payment of $18,275 in accounting fees and the $546,125 mortgage
on the Douglas, Arizona plant owned by Hutronix, Inc. The
reversal of the Hutronix, Inc. purchase included an
idemnification on the above guarantees. Should the other party
fail to perform, the obligations could be asserted against the
Company.
10 Subsequent event
On January 26, 1996 the shareholders ratified the sale of
Hutronix, Inc. and QDS, de Mexico, S.A. de C.V.
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<PAGE>
Management's Discussion and Analysis
The following discussion of the results of operations and
financial condition should be read in conjunction with the audited
financial statements and related notes under the caption "Financial
Statements".
Overview
In July of 1992, the existing management took over the
direction of J.A. Industries, Inc. It was the intention of the
management to enhance the value of its shares on behalf of its
shareholders by acquiring cash flow entities which were, firstly,
synergistic with existing subsidiaries and secondly were companies with
consistent growth potential.
The first acquisition was Torik, Inc. in September, 1992, which
at that time was just breaking even on its sales of $300,000 per
month. Subsequent to the Torik acquisition, the Company had entered
into litigation and lost the case to the former management of Torik
returning all shares back to the Torik management. The Company was
booking that acquisition at the cost of $200 which has been written
off.
The second acquisition of the assets of Pacific Rim Polytech,
took place in February, 1993 by the Company's wholly owned subsidiary
J.A. Industries (Canada) Inc. ("J.A. Canada"). J.A. Canada immediately
started the manufacturing of underground junction boxes and cable tray.
In June, 1995 the Company sold J.A. Canada to a non-affiliate British
Columbia Corporation.
The Company also entered into two licensing
agreements and manufacturing agreements for the manufacture and
distribution of electronic ballasts of which both licenses are
inactive.
In September of 1993, the Company acquired Hutronix, Inc., of
Tucson, Az ("Hutronix"). Subsequent to the year ended, 1996, the
Company returned the shares of Hutronix to Baboquivari Cattle Company
("BCC") to settle outstanding liabilities with BCC.
In December of 1993, the Company acquired the assets of
Capital City Plastic ("CCP"). CCP had been inactive since May of 1993.
As CCP was unable to deliver the equipment as detailed in the
purchase agreement, the Company cancelled the purchase agreement.
In May, 1994 the Company signed an option agreement to acquire
100% of Link Technologies (Canada) Ltd. ("Link"). The Company was to
pay $500,000 USD plus issue 500,000 shares of common stock to acquire
100% of Link. The Company was also to provide $1,500,000 USD in
working capital for Link. Subsequent to this agreement the option has
expired and no further agreement has been reached.
On March 30, 1994 Granite Marketing Corporation. ("Granite"),
then a wholly owned subsidiary of the Company, entered into an agreement
with Queensland Industries, Inc. ("Queensland") whereby Queensland
purchased from Granite an exclusive license to manufacture,
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<PAGE>
promote, market, sell and distribute the products of J.A. Canada
relating to polyurethane underground junction boxes. Queensland is a
wholly owned subsidiary of Wincanton, Corporation ("Wincanton"), a
publicly traded Washington State Corporation. Subsequent to this
agreement, the Company rescinded the licensing agreement in exchange
for a $50,000 USD payment by Queensland Industries to Granite.
Granite is currently inactive. Subsequent to the year end, Granite was
sold to an unrelated third party in exchange for assumption of
Granite's liabilities.
On June 28, 1995 the Company signed a letter of intent to
merge with privately held MiNT Corporation ("Mint") through a stock for
stock exchange. The share exchange would have resulted in a change of
control of J.A. Industries to the majority shareholders of Mint. Mint
is in the business of providing high quality contract manufacturing
of electronic and electromechanical printed circuit board assemblies.
Subsequent to this letter of intent and subsequent to the year ended
June 30, 1995, the shareholders of Mint elected not to proceed with
the acquisition.
Subsequent to the year ended June 30, 1995, the Company entered
into an Agreement and Plan of Merger (the "Merger") with Kenmar Business
Groups, Inc. ("Kenmar") of Raleigh, NC. Pursuant to the terms of
the agreement, current shareholders of Kenmar will receive common
stock of J.A. Industries such that Kenmar shareholders will own
approximately 50% of the outstanding shares of J.A. Industries, Inc. on
closing. The agreement is subject to shareholder's approval of both
companies as well, J.A. Industries, Inc. must finalized its settlement
agreement with a former stockholder, Karl Ronstadt and Hutronix, Inc.
subsequent to the year ended June 30, 1995, the Company did resolve its
outstanding dispute with Baboquivari Cattle Company as described above
(see "Hutronix").
Kenmar Business Groups, Inc. ("Kenmar") founded in 1984, is a
provider of high quality electronic manufacturing services. It is
located in the Research Triangle area of North Carolina. Kenmar has
a broad array of technical capabilities to bring products to the
market from concept to final production. Kenmar's manufacturing team
has experience in producing electronic and electro-mechanical
subassemblies and products for use in the telecommunication, industrial
control, computer, medical and instrumentation industries. Kenmar has
both Surface Mount Technology and Pin Thru-Hole capabilities as well
as cable, harnesses and interconnect assembly lines.
Management believes that the trend towards outsourcing
in the electronic manufacturing industry is expanding. To this end,
management still believes that its strategy to acquire synergistic
businesses in the contract manufacturing industry is a sound plan. The
planned Merger between the Company and Kenmar is the first step in
trying to re-establish that plan. Upon completion of the Merger,
current management of Kenmar will assume management of the Company.
Prior to the Merger, the Company must reduce its liabilities
and contingent liabilities to zero and have working capital of a minimum
of two hundred thousand ($200,000) dollars. To
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this end, the Company has disposed of, settled or is in the process of
settling all outstanding liabilities. The Company has reached
agreements and has signed releases for potential contingent liability
claims arising or potentially arising from several of the Company's
former agreements.
The Company intends to fund its capital requirements through a
private placement to meet the terms of the agreement. To date the
funds necessary to complete the Merger are in place and will be
released to the Company subject to Shareholder's approval of the
Merger. If Shareholder's approval is not obtained to complete the
Merger, then the funds in escrow would not be released to the Company.
The Company will continue to focus its expansion plans
on the acquisition of other contract manufacturing operations.
Seasonal factors do not influence the Company's sales.
Liquidity and Capital Resources
Subsequent to the 3 months ended September 30, 1995,
Hutronix was returned to Baboquivari Cattle Company (former shareholder
of Hutronix, "BCC") for release of all liabilities owed by the Company
to BCC and BCC's assumption of all liabilities associated with
Hutronix. The Company has no cash flow and its ability to maintain
operations is severely impaired. If the Company cannot raise additional
capital it is unlikely the Company would be able to operate and it may
be forced to seek protection under Chapter 11 of the Bankruptcy Act.
It is the Company's goal in the fiscal year ending June 30,
1996 to find a suitable acquisition candidate. Management anticipated
that the Company will do further equity financing. Management believes
that from these sources the Company will adequately fund the
operations of the Company and allow it to maintain its aggressive
acquisition strategy.
To Address the accountant's report of a "going concern"
uncertainty, it is anticipated that the Company will continue to look
for new opportunities in the contract manufacturing area. On March 1,
1996 the Company entered into an agreement to merge with Kenmar to
fulfill the Company's business strategy. As part of the Merger, the
Company must eliminate all outstanding liabilities and have working
capital of $200,000. At the date of this report, the Company has
approximately $133,000 in liabilities it must satisfy to complete the
Merger. As of May 15, 1996 the Company raised the required funds to
complete the Merger through a private placement of its common stock.
The funds are in escrow with the Company's legal counsel and will
be released to the Compnay upon shareholder's approval of the
Merger. In the event the Company did not receive shaeholder's approval,
the funds would not be release from escrow and the Company wold not
be able to meet its financial requirements. If the Merger was not
completed, then the Company could be forced to seek protection under
Chapter 11 of the Bankruptcy Act.
In the event that the Company does raise the necessary
funds to complete the Merger, and all other conditions of the Merger
are satisfied and the Merger is completed it is anticipated that
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cash flow from ongoing operations will satisfy the day to day
needs of the Company. Furthermore, as of February 29, 1996, Kenmar had
approximately $744,500 in cash or cash equivalents (unaudited). It is
anticipated that the merged company will use these funds to maintain
and grow the existing business that it has. It is also the Company's
goal to try and arrange an equity financing in the amount of $3 million
dollars to expand its business. No commitment for such financing has
been arranged and the likelihood of its completion cannot be
guaranteed. In the event the merged company could not raise any
additional capital, it is anticipated that current rates of growth of
the merged company would satisfy its working capital requirements.
Future cash needs of the merged entity would include funds to
implement the Company's acquisition strategy and to sustain the
Company through a period of restructuring and growth.
Notes Payable and Long term debt
Hutronix, Inc. a former subsidiary has a note payable to
Bank One executed through the Industrial Development Authority of the
City of Douglas due in quarterly instalments of $12,821, plus interest
at 65% of prime (7.25% as of June 30, 1994), due may 2005; secured by a
deed of trust on the real estate held for sale and an irrevocable
letter of credit from a bank in the amount of the outstanding note
payable balance guaranteed by the Company. At June 30, 1995 the amount
outstanding was $576,908. The subsequent agreement between BCC and the
Company calls for BCC and Hutronix to indemnify the Company
against any liability under this bond. As the solvency of Hutronix,
Inc. is uncertain, the ability for Hutronix, Inc. to indemnify the
Company is unlikely. On March 4, 1996 the liability under the
guarantee to Bank One was satisfied. Furthermore, on November 21,
1996 an agreement was reached between Baboquivari Cattle Company,
Karl and Marilyn Ronstadt, Hutronix, Inc. and the Company whereby the
parties exchanged mutual releases relieving the Company of any
liabilities that it had or might have in the future with the parties.
On closing of the Merger between Kenmar and the Company, the
Company is obligated to pay a former minority shareholder of Hutronix,
Inc. $10,000 and issue 50,000 shares of restricted common stock in
exchange for a release from all future obligations the minority
shareholder may be entitled to. Also, on closing, the Company is
obligated to pay the former landlord of Hutronix, Inc. a fee for
releasing the Company from a Corporate guarantee on the lease of the
building located at 1150 E. Palmdale, Tucson, AZ. The funds
for these transaction are part of the funding needed for the
closing of the Merger agreement. If the funds were not raised or the
Merger was not completed, these liabilities would still be outstanding.
On June 30, 1995 the Company sold its wholly owned
subsidiary, J.A. Industries (Canada) Inc. to an unrelated third
party. The sale relieved the Company of any long term debt associated
with the subsidiary. Furthermore, the Company obtained releases for
all corporate guarantees that it had provided for the subsidiary
subject to certain cash payments as follows. The Company settled with
one creditor by issuing shares of restricted stock in the amount of
136,000 shares to satisfy approximately $34,000 USD of debt. On
completion of the Merger between Kenmar and
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<PAGE>
the Company, the Company will incurred a cost of $5,000 USD to settle
with one creditor that comes from a corporate guarantee of the
Company. The funds for settling this amount will come from the funds
necessary to close the Merger transaction. If the funds were not raised
and the Merger was not completed, then this liability would still be
outstanding with the creditor.
In March, 1996, the Company came to a final agreement with
the former owners of Capital City Plastics whereby Capital City Plastic
and John Szaniszlo will provide the Company with a release from all
liabilities and deliver to the Company 600,000 shares of common stock
issued to Capital City Plastics in exchange for the Company's release
from liabilities, $10,000 and the issuance of 50,000 restricted common
stock of the Company. The funds necessary to complete this transaction
are part of the funding needs of the Merger. If the necessary funds
were not raised or the Merger was not completed, the Company's
position would be that there are no liabilities outstanding with
Capital City Plastic or John Szaniszlo as they had breached the original
agreement between the parties.
On completion of the Merger, for which there can be no
guarantee, the Company will be assuming the following liabilities
based on the Kenmar audited financial statements for the period
ending August 31, 1995 and unaudited financial statements for the
six month period ending February 29, 1996:
Line of credit/loans $ 0
Current maturities of long term debt $ 4,317
Current obligations under capital lease $ 35,203
Accounts payable - trade $ 621,852
Income tax payable $ 0
Other accrued liabilities $ 94,833
=========
Total Current Liabilities $ 756,205
Long Term Debt, less current maturities $ 541,236
Long term obligations under capital lease $ 57,750
=========
Total Liabilities as of February 29, 1996 $1,021,386
Line of Credit: In March, 1994, Kenmar negotiated a $4 million revolving
line of credit with a commercial lender which allowed it to borrow up to
80% of eligible receivables and was secured by a first lien on all the
Company's receivables and inventory. Borrowing under this line bears
interest at prime plus 2.5% (minimum 7.5%) in addition to an annual
facility fee and other costs. Kenmar paid off the line of credit in the
fourth quarter of its fiscal year ended August 31, 1995. Kenmar has
not requested a renewal of the line of credit.
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Long-term Debt: Long term debt of Kenmar consists of the following:
1995 1994 1993
----- ----- -----
Subordinated promissory notes payable monthly $524,855 $646,674 $700,675
instalments of $9,009 including interest at
8% through October 2002.
Bank debt collateralized by a first lien on all the - $217,932 -
Company's plant, equipment, furniture and
fixtures payable in monthly instalments of
$7,950, including interest at prime +1%. this
loan was paid off prior to august 31, 1995.
Uncollateralized note payable to stockholder $ 39,482 $ 43,486 $ 47,149
repayable with interest at 8% in 59 monthly
instalments of 4610 and a balloon payment
of $30,083 on October 15, 1997
Notes payable secured by equipment repayable $ 18,403 $ 42,202 -
in monthly instalments of $2,435 including
interest at 16.85% through April 1996.
(Subsequently, this note was satisfied)
Note payable to stockholder in monthly - - $ 22,069
instalments of $2,535 including interest
at 8% through April, 1994, collateralized
by certain equipment.
$582,380 $950,276 $769,893
Less current maturities $ 22,359 $293,242 $ 79,750
-------- -------- --------
$560,021 $657,034 $690,143
======== ======== ========
Principal maturities of debt Kenmar at August 31, 1995 are as follows:
Year ending August 31
1996 $ 22,359
1997 $ 73,269
1998 $104,776
1999 $ 80,451
2000 $ 87,130
Thereafter $214,395
--------
Total Long-term debt $582,380
=======
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Obligations Under Capital Leases of Kenmar:
Kenmar leases equipment under capital leases which expire on various
dates through 1998.
1995 1994 1993
---- ---- ----
Machinery and equipment $200,066 $200,066 $ 62,735
Vehicles - $ 27,871 $ 27,871
-------- -------- --------
Total $200,006 $227,937 $ 90,606
The following is a schedule by years of future minimum lease
payments under capital leases as of august 31, 1995 for Kenmar
Year ending August 31
1996 $ 48,272
1997 $ 49,701
1998 $ 29,431
--------
Total minimum lease payment $127,404
Further Kenmar Commitments:
Kenmar leases certain office and production space,
machinery and equipment under noncancellable operating leases
expiring at various dates through 1998. During the years ended
August 31, 1995, 1994 and 1993, Kenmar incurred rental expenses of
$214,505, $271,488 and $230,175 respectively under these leases.
Future minimum lease payments under the terms of the above leases are as
follows:
1996 $38,422
1997 $ 2,952
1998 $ 2,460
Preferred Stock of Kenmar:
The aggregate number of authorized shares of preferred
stock is 100,000. Of the 100,000 shares of preferred stock 30,000
shares have been designated as Class A cumulative preferred stock.
The designation of the remaining 70,000 shares will be determined by
the Board of Directors of Kenmar.
Kenmar issued 1,150 shares of $50 par value Class A
cumulative preferred stock ("Class A Preferred") in 1994. During 1993,
the Company issued 716 shares of Class A Preferred including upon
receipt of the issue price, 200 shares subscribed at August 31, 1992.
Each share of Class A Preferred may be called or put at any time after
five years from the date of issuance at a rate of one and one-half
times the issue price. Redemption requirements of Class A Preferred
stock at August 31, 1995 were as follows:
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1997 $150,000
1998 $447,000
1999 $ 68,700
2000 $ 86,250
--------
Total $751,950
=======
The Class A Preferred is entitled to a 10% cumulative dividend
payable quarterly, subject to the provisions of North Carolina law.
Cumulative unpaid dividends are $73,008, $23,378, and $7,643 as of
August 31, 1995, 1994, and 1993 respectively.
Upon liquidation, the Class A shares have preference over
holders of common stock in an amount equal to the issue price plus
cumulative dividends in arrears. Cash dividends of $0, $32,910 and
$40,031 were paid in 1995, 1994, and 1993, respectively.
Results of Operations
The following information is derived from the attached
financial statements and sets forth, for the periods indicated, the
relative percentage that certain income and expense items bear to net
sales.
For the 9 month period ended March 31, 199 compared to the
9 month period ended March 31, 1995. The auditors report for the period
ending June 30, 1995 states that as a result of the discontinuation of
operations of the Company there raises substantial doubt about the
Company's ability to continue a going concern. The consolidated
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
In early March 1995, the Company entered into negotiations with
Karl G. Ronstadt and Baboquivari Cattle Company, former shareholders of
Hutronix, Inc. to settle outstanding issues and potential
liabilities. The Company and the former shareholders could not come to
any resolution. On September 23, 1995, the former shareholder of
Hutronix, Inc. exercised his right under a put/call agreement dated
September 23, 1993 and attached to the original purchase agreement
of Hutronix, Inc. dated September 15, 1993. The put option allowed the
former shareholder to put 262,000 shares of the Company to the
Company at a price of $2.25 creating a liability of $589,500. The
Company did not have the resources to pay the liability. On November 21,
1995 the Company entered into an agreement to reverse the acquisition
of Hutronix, Inc. the only remaining operating subsidiary of the
Company to satisfy all outstanding liabilities between the former
shareholder of Hutronix and the Company. The condition that effected
the decision to enter into the agreement to reverse the Hutronix
acquisition occurred prior to the Company's year end. Although
the assets and operations of Hutronix were included in the Company's
June 30, 1995 financial statement, they were subsequently disposed of and
it was so reported in the Company's December 31, 1995 financial statement.
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On March 11, 1996 the Company entered into a plan of merger
with Kenmar Business Groups Inc. A condition of the agreement is that
the Company is to have no liabilities and working capital of $200,000.
To this end, though the Company has an inactive status, there are
substantial one time charges to eliminate all liabilities and to settle
contract obligations.
On September 23, 1995, Baboquivari Cattle Company exercise
its put option under a put/call agreement dated September 23, 1993. The
option obligated the Company to purchase 262,000 shares of the
Company's stock from Baboquivari at a price of $2.25 creating an
unfunded liability of $589,500. Prior to this period, the auditors of
the Company had treated this item as a non-balance sheet item.
On November 21, 1995 the Company entered into an
agreement with Baboquivari Cattle Company to transfer all title
of Hutronix, Inc. to Baboquivari Cattle Company in exchange for a
release of all liabilities.
For the three month period ending March 31, 1996 the
Company had no operations and therefore no revenue compared to sales
of $1,035,397 for the three month period ended March 31, 1995 and
sales of $3,452,982 for the nine month period ended March 31, 1995.
General and Administrative expenses for the three month period ended
March 31, 1996 were $298,405 compared to $262,027 for the
corresponding period in 1995. G&A for the nine month period ended March
31, 1996 was $1,043,970 compared to $741,524 for the corresponding
period in 1995. The G&A costs can be attributed to the restructuring
and reorganization the Company experienced from the disposition and
discontinuation of operations and the merger agreement the Company
entered into with Kenmar Business Groups, Inc. The Company had a net
loss from operations of $1,118,561 for nine month period ended March
31, 1996 compared to $300,884 for the corresponding nine month
period in 1995. The Company had a Shareholder's deficit of $203,695 at
March 31, 1996 compared to Net Equity of $670,141 for the same
period 1995. Current liabilities were significantly reduce due to
cessation of operations to $220,276 for the period ended March 31, 1996
compared to Current Liabilities of $964,465 for the corresponding
period ended March 31, 1995.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized
J.A. INDUSTRIES, INC.
per:/s/Robert Knight/
Robert Knight, Chief Executive Officer May 28, 1996
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